All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Life Storage in Focus
Headquartered in Williamsville, Life Storage (LSI) is a Finance stock that has seen a price change of 3.86% so far this year. The self storage real estate investment trust is paying out a dividend of $1 per share at the moment, with a dividend yield of 4.32% compared to the REIT and Equity Trust - Other industry's yield of 4.57% and the S&P 500's yield of 1.93%.
Looking at dividend growth, the company's current annualized dividend of $4 is up 1.3% from last year. In the past five-year period, Life Storage has increased its dividend 4 times on a year-over-year basis for an average annual increase of 12.41%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, Life Storage's payout ratio is 74%, which means it paid out 74% of its trailing 12-month EPS as dividend.
LSI is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $5.46 per share, which represents a year-over-year growth rate of 2.82%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that LSI is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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Life Storage, Inc. (LSI) : Free Stock Analysis Report
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